Wednesday, March 10, 2010

A Perspective of State Interventions

Gary Lipow writes in Grist (‘a beacon in the smog”) HERE

Historically U.S. infrastructure, the basis on which this nation developed, was never some magical response to supply and demand.”

The Erie Canal would not have been built without rights of way given away to the builders. Land given to homesteaders and farmers made us one of the world's great farming nations. Railroads were built because the great railway companies were granted land a mile out from their tracks to compensate for construction costs. Or think of the telegraph, one of the first types of public infrastructure to receive not only grants of rights of way, but massive direct public cash subsidies. And it is worth remembering that none of this was built on empty land; American Indians were slaughtered or driven away for every one of these things. Much of the work on that stolen land was done by slaves. I can't imagine a "green tax" that could have compensated for that. …

Adam Smith, the inventor of the term "the invisible hand" favored fire regulations, free public education, building safety codes, and (in emergencies) wage and price controls. As someone concerned with supporting an infant capitalism, and overthrowing the remnants of feudalism, he would have laughed at the idea of capitalism without a strong state. And yes, Adam Smith was overoptimistic about the ability of such regulation to contain the dark side of capitalism. But, given when he wrote, he may be excused his errors, especially since even then he was a far clearer thinker than the fuzzy headed right wing libertarians who consider themselves his true heirs today.

I think he did invent (or at least promote) a fundamental error that explains why the role price can play in replacing other forms of regulation is often overlooked. He thought of price as reflecting a balance between supply and demand. To some extent price does reflect those things. But price also reflects power. In Adam Smith's time, price often reflected the ability to kill people, seize their land by force, and then work that land with slaves. Today the price of a pound of rice reflects in part the Haitian market for that rice developed by applying financial pressure to a series of Haitian governments, and forcing them to destroy their domestic capacity to produce their own rice.

I shall ignore on this occasion the error about “Adam Smith” being “the inventor of the term "the invisible hand" ‘ (see Lost Legacy posts passim) and focus on his articulate charges about the roles of the state in development.

Gary Lipow is correct to balance the over enthusiasm for the ideals in the US Constitution, its defects in its application shrinking in significance compared with the history of the European states, including Britain at the time. To a significant extent, the evolution of the basis of liberty, as noted by Smith, within Britain, was a contributory factor to the ideals manifested in the US Constitution; they were not invented by Congress.

Lipow adds more to the theme of the paragraph I have quoted and it is worth considering in the light of this week’s debate on the relative size of the state in practice. Aside from Lipow’s presentation of the politics of state regulation, he does make some powerful points about the role that the state – any modern state – plays in everyday matters like urban development, roads (parking!) and the infra-structure that Smith outlined as the proper role of state (Wealth Of Nations, Book V).

It makes quite a list and I urge you to follow the link. If you are put off by Lipow’s political partiality, don’t be; in the kernal of what he says there is a general truth, worth considering when debates about the size of the state commence.



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